Stocks in the news
3M (MMM) beat Q1 earnings estimates, but its ongoing sales declines remain an issue. Following its Q1 earnings report, which beat analysts' subdued expectations, the beleaguered industrial giant saw its shares jump higher. The company also announced a cost-cutting initiative that is expected to generate pre-tax savings of $700-$900 mln as 6,000 positions are eliminated. However, MMM's revenue continues to worsen, declining to -9.0% in Q1 2023. MMM's consumer-facing businesses, such as electronics and home improvement-related products, experienced a decline in demand due to macroeconomic headwinds. MMM's restructuring actions helped push operating cash flow higher by 26% yr/yr to $1.3 bln, and adjusted free cash flow climbed 24% to $900 mln. Nevertheless, each quarterly report features a key end market or two that is struggling, making it difficult to see a meaningful recovery anytime soon.
Meanwhile, Whirlpool's (WHR) Q1 earnings report showed that adjusted EPS fell by 50.0% yr/yr to $2.66, and revs edged 5.5% lower to $4.65 bln. Although the household appliance manufacturer's shares initially shot up following the news, they soon reversed course at market open. Whirlpool relies heavily on the replacement market, which represents 55% of the industry. With intense inflationary pressures and lingering recession fears, consumers may be trying to squeeze as much life out of their current appliances for as long as possible instead of upgrading them. WHR's operational improvements are keeping it on track to reduce its cost base by $800-900 mln in FY23. As such, combined with sturdy Q1 results, WHR was confident in reiterating its FY23 outlook, targeting adjusted EPS of $16.00-18.00 and revs of $19.40 bln. However, short-term uncertainties continue to hang over the stock, such as consumers delaying purchases due to inflationary pressures and recession fears.
General Motors has surpassed earnings estimates for the third quarter in a row, with the Q1 earnings growing 6% instead of the expected 17% decline. GM has achieved this through cost reductions and an employee buyout program, and it has gained 1.3 points of market share in the US, allowing the company to raise its FY23 guidance. However, the amount of the increase in guidance was lower than the Q1 EPS estimates that GM exceeded, causing investors to be cautious. Nevertheless, GM's earnings report demonstrates resilience in an environment with higher interest rates and stubborn inflation. The company has also seen a jump in total deliveries of 18%, with electric vehicle deliveries reaching over 20,000 in the US.
Meanwhile, McDonald's is experiencing strong consumer demand, reporting another nice EPS and revenue beat, despite a challenging operating environment. The company's Q1 global same store comps have been very impressive, coming in at +12.6%, the fifth quarter in a row where they exceeded analyst expectations. Additionally, China posted positive comps in Q1, following COVID closures.
PepsiCo (PEP) has reported upbeat Q1 results, surpassing earnings and sales estimates while raising its FY23 guidance, which has caused its shares to soar to 52-week highs. The strong results indicate that consumers continue to prioritize brand-name staples despite rising prices, leading to robust demand for PEP's products. The positive trend is also reflected in Coca-Cola's Q1 results, but investors have been less enthusiastic about the latter company's report. PEP's adjusted earnings grew by 16.3% YoY to $1.50, while top-line growth increased by 10.2% to $17.85 billion, beating consensus estimates. When excluding FX, acquisitions, and divestitures, PEP's sales growth on an organic basis was 14.3%. The company's pricing had a 16-point positive impact on organic sales growth, with total organic volumes slipping by only 2%, indicating strong consumer health. The main growth drivers were PEP's two largest divisions by revenue, Frito-Lay North America and PepsiCo Beverage North America. While growth remained steady in these divisions, overseas, PEP's numbers mirrored KO's, with Latin America showing positive growth, but Europe remaining weak. PEP expanded its non-GAAP operating margins by around 110 bps YoY, with CEO Ramon Laguarta citing better supply of materials and improved labor availability. PEP confidently increased its FY23 outlook, expecting adjusted EPS of $7.27 (up from $7.20) and organic sales growth of +8% YoY (up from +6%). The overall trend in the beverage and convenience categories underpins the relative strength of name-brand consumer staples, which may continue to benefit PEP if there is a significant pullback in the market. Overall, both PEP and KO's Q1 results indicate a positive outlook for other consumer staples reporting earnings over the next few weeks.